U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 1-8631
DOVER INVESTMENTS CORPORATION
(Name of small business issuer in its charter)
DELAWARE 94-1712121
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Spear Street, Suite 520, San Francisco, California 94105
(Address of Principal Executive Offices) (Zip Code)
(415) 777-0414
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock, $.01 par value per share
(Title of class)
Class B Common Stock, $.01 par value per share
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year, which is the year
ended December 31, 1997 were $19,085,486.
The aggregate market value of the voting stock held by non-affiliates,
computed by reference to the average bid and asked prices of the Class A
Common Stock and Class B Common Stock as of February 1, 1998, was $5,365,400.
The average bid and asked prices of Class A Common Stock and Class B Common
Stock were $8.6875 and $8.6875 per share, respectively, on that date.
The number of shares outstanding of each of the issuer's classes of Common
Stock as of February 1, 1998, were as follows:
Title Shares Outstanding
Class A Common Stock .......................... 684,810
Class B Common Stock .......................... 317,867
Transitional Small Business Disclosure Statement
Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Proxy Statement relating to the registrant's 1998
Annual Meeting of Stockholders are incorporated by reference into Part III
of this Report on Form 10-KSB.
TABLE OF CONTENTS
Page No.
PART I
ITEM 1. DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . . 1
ITEM 2. DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . . 1
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 3
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . 3
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . 5
ITEM 7. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . 7
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . 7
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT. . . . . . . . . . . . . . . . . . . . . . .8
ITEM 10. EXECUTIVE COMPENSATION .. . . . . . . . . . . . . . . . .8
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . .8
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K. . . . . . . . . .9
APPENDIX A. CONSOLIDATED FINANCIAL STATEMENTS OF DOVER INVESTMENTS
CORPORATION AND SUBSIDIARIES, AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS,
DECEMBER 31, 1997 AND 1996
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company engages primarily in land development and building of
single family homes.
ITEM 2. DESCRIPTION OF PROPERTY
Real Estate Development. At December 31, 1997, the Company has
completed lot improvements on one hundred and ninety eight lots and partial
improvements on fifty one additional lots. Of the one hundred and ninety
eight lots with completed lot improvements, ten are part of a model complex,
one hundred and fifty four have been built, sold and closed, twenty one are
under construction, eighteen of which have contracts of sale and three are
for sale. The remaining thirteen of the one hundred and ninety eight lots
have lot improvements and will be further developed during the next phase of
construction. The market for homes at Marina Vista improved substantially
during 1997. See "Management's Discussion and Analysis or Plan of
Operations" for a discussion of the financing of the Marina Vista property.
Land Development. The Company continues to be part of a Glenbriar
Joint Venture (the "GJV") with Westco Community Builders, Inc. ("Westco") in
Tracy, California which owns one hundred and eight acres of land comprising
a portion of the Glenbriar Estates Project. During 1996, the Company formed
a limited liability company with Westco, known as Glenbriar Venture #2 which
holds options to purchase approximately one hundred and thirty one acres of
land also comprising a portion of the Glenbriar Estates Project. GJV and
Glenbriar Venture #2 have succeeded in rezoning the Glenbriar Estates
property to Low Density Residential and have obtained the approval of new
tentative subdivision maps which provide for three hundred and eighty two
lots on the GJV property and approximately five hundred lots on the Glenbriar
Venture #2 property. The tentative subdivision maps provide for four lot
types ranging in size from 6,000 square feet to one acre in size.
In June 1997, GJV commenced rough grading of the entire GJV property and has
installed the principal off tract and "backbone" improvements. GJV has
obtained final subdivision maps covering ninety two of the 6,000 square foot
lots (Units 5 & 6) and has sold these lots in an "unfinished" state to an
unrelated merchant builder. This builder closed the sale of its first houses
within the subdivision. GJV has also granted this builder an option to
purchase an additional eighty eight lots (Unit 7) in an "unfinished" state,
and the builder has notified GJV of its intention to exercise the option.
Additionally, GJV has obtained approval of a final subdivision map covering
eighty of the 7,200 square foot lots (Unit 2) and plans to build homes for
sale on these lots. Site improvements on these lots (e.g. utilities,
streets, curbs, gutters, paving, etc.) are currently being installed and
house plans have been submitted to the city for "plan check". GJV currently
has two other final subdivision maps on file with the City of Tracy pending
approval covering eighty four lots (Units 3 & 4). GJV intends to develop
these lots by construction of single family homes for sale to the public.
Additional subdivision maps will be submitted for approval as the market will
permit. In the future, GJV intends to build homes for sale to the public,
as well as sell lots to unrelated merchant builders.
During the third quarter, the Company entered into agreements with Westco
whereby Westco would construct and sell two higher priced custom single
family homes in the Silicon Valley Region of California. The profits from
these two homes will be split between the partners upon sale. The properties
have been purchased and construction has commenced on one home and the other
home is in "plan check" with the local governmental agency.
The Company expects that the Marina Vista project and the Glenbriar
Estates Project will provide a profit from the sale of homes and lots. The
Company expects to invest in other real estate projects when appropriate
opportunities occur and is not subject to any limitations on the percentage
of assets which may be invested in any single investment or type of
investment. In order to maintain it's market share of new home sales, the
Company keeps home prices competitive with other builders of a similar
product, in the vicinity of the project.
Employees
The Company currently has five full-time employees and one part-time
employee, all of whom work at the Company's executive offices in San Francisco.
Leases
The Company entered into an agreement to lease new premises for a
term that commenced on October 1, 1997 and ends on September 30, 2002, with
an option to extend the term of the lease for an additional period of five
years, commencing immediately after the expiration of the term of the lease.
The Company entered into an agreement to sublease to another Corporation a
portion of the premises. That Corporation's share of the lease equals
35% of the total rent and operating costs. The base rent per rentable square
foot for years one thru three equals $20.59, years four thru five $23.09 per
square foot. The Company is also responsible for a yearly operating cost
payment equal to 1.73 percent of the basic operating cost, which amounted
to $3,293.67 per month for 1997.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
Shares of the Class A Common Stock and the Class B Common Stock are
currently traded on the NASD OTC Bulletin Board under the symbols DOVR-A
and DOVR-B.
The high and low bid information for 1997 and 1996 are as reported
on the National Quotation Bureau Pink Sheets. Such bid quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and
may not represent actual transactions.
CLASS A COMMON STOCK
High Low
Fiscal 1997 Quarter Ended:
March 31 5.875 4.750
June 30 6.375 6.000
September 30 7.500 7.000
December 31 8.125 8.125
Fiscal 1996 Quarter Ended:
March 31 6.875 6.375
June 30 8.000 6.375
September 30 6.000 5.875
December 31 6.250 5.500
CLASS B COMMON STOCK
High Low
Fiscal 1997 Quarter Ended:
March 31 5.875 4.750
June 30 6.375 6.000
September 30 7.500 7.000
December 31 8.125 8.125
Fiscal 1996 Quarter Ended:
March 31 6.875 6.375
June 30 8.000 6.375
September 30 6.000 5.875
December 31 6.250 5.500
Holders
As of February 1, 1998, there were 533 stockholders of record
of the Class A Common Stock and 160 stockholders of record of the Class B
Common Stock.
Dividends
The Company has not paid dividends on the Class A Common Stock
and Class B Common Stock since June 30, 1989 and presently has no intention
to pay dividends in the foreseeable future.
In August 1997 and June 1995, the Company's Board of Directors
approved a stock repurchase program under which the Company may, subject to
certain requirements, purchase up to 400,000 shares of its Common Stock in
the open market. Through December 31, 1996, the Company had repurchased
159,860 shares of Common Stock, at an aggregate purchase price of $835,000.
As of December 31, 1996 and 1997, 850 and 35,894 shares respectively have
been reissued.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
Results of Operations for the Years Ended December 31, 1997 and 1996
The Company had net income of $388,000 for the year ended
December 31, 1997, compared to net loss of $174,000 for the year ended
December 31, 1996. The income for 1997 was the result of increased gross
profit from a higher number of home sales at the Marina Vista project and
the sale of lots to an unrelated merchant builder at the Glenbriar Joint
Venture property.
In the year ended December 31, 1997, the Company closed the
sale of 53 homes at the Marina Vista and 92 lots at the Glenbriar Joint
Venture project , compared to 33 homes and no lot sales in the year ending
December 31, 1996. Total sales were $18,921,000 for 1997, resulting in a
gross profit of $2,553,000 and a gross profit margin of 13.49 percent,
compared to total sales of $10,036,000 for 1996, resulting in a gross profit
of $880,000 for the year and a gross profit margin of 8.77 percent. The
increase in profit margin is attributable to the increase in sales prices
and the sale of lots at the Glenbriar Joint Venture property. Selling
expenses of $1,130,000 include the costs of maintaining a sales office, the
model homes, commissions payable to outside brokers and fees payable to
Westco. General and administrative expenses increased by $84,000 in 1997.
The increase in general & administrative expenses for 1997 was attributable
to higher professional fees and other administrative expenses. The Company's
cash requirements for the next twelve months will be satisfied by proceeds
from home and lot sales.
Interest income in 1997 increased to $131,000, compared to
$124,000 in 1996, due to higher cash balances from increased home sales.
Costs for the development of property and the building of
homes are capitalized during the construction period. Such costs include
expenditures for land, land improvements, model homes, capitalized interest,
and construction in progress. When a home is sold, the cost of sale is
recognized, which includes land, site development, construction, management
fees and financing costs.
Liquidity and Capital Resources
At December 31, 1997, the Company had total assets of
$29,109,000, as compared to total assets of $26,725,000 at December 31, 1996.
The cost of the Company's property being developed was $21,900,000 in 1997,
compared to $23,119,000 in 1996. Highly liquid assets were $4,076,000 at
December 31, 1997, compared to $2,963,000 at December 31, 1996.
The Company's total liabilities increased to $8,662,000 at
December 31, 1997, compared to $7,629,000 at December 31, 1996. This
increase was attributable primarily to an increase in notes payable to
$7,063,000, in 1997, from $5,999,000, in 1996, and a decrease in accrued
interest and other liabilities to $1,373,000 in 1997 from $1,490,000 in 1996.
The increase in additional paid-in capital of $779,000 for the
year ended December 31, 1997, is due primarily to realization of the tax
benefits related to net operating losses incurred prior to the quasi-
reorganization in the amount of $760,000 and the reissuance of treasury stock
of $19,000.
During 1997, the Company made the final principal payment of
$2,500,000 to the seller of the Marina Vista property. The seller released
the remaining property from the lien of its deed of trust.
During 1997, the Company's primary liquidity needs were
related to funding development costs of the Marina Vista, the Glenbriar Joint
Venture projects and the custom single family homes, in addition to notes
payable, the principal payment of $2,500,000 and interest payments of $638,000.
The Company borrowed a total of $4,665,000 from private
sources to pay for home construction costs, during 1997. The loans are
secured by lots and homes under construction and will be paid from the
proceeds of home and lot sales. The loans bear interest at the rate of
prime plus 1.5 percent per annum and mature on September 30 and December 31,
1998. The Company also obtained an $802,000 loan secured by four model
homes. The loan bears interest at the rate of 11.25 percent per annum and
matures on June 30, 1998.
The Company's primary source of liquidity during 1997, was
from the proceeds of home sales. The Company may also borrow funds from time
to time to develop both the Marina Vista and the Glenbriar Joint Venture
projects.
As the millennium approaches, the Company is preparing its
computer system to be Year 2000 compliant. In the process, the Company
expects to replace and upgrade the system. The Company does not expect that
the expense, to become Year 2000 compliant, will have a material effect on
its financial position or results of operation.
ITEM 7. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company,
as set forth on the pages indicated, are filed as part of this report.
Index to Financial Statements
Report of Independent Certified Public Accountants . . . . . .A-1
Consolidated Balance Sheets at December 31, 1997 and 1996. . .A-2
Consolidated Statements of Operations for the Years Ended
December 31, 1997 and 1996. . . . . . . . . . . . . . . . .A-3
Consolidated Statement of Stockholders' Equity for the
Years Ended December 31, 1997 and 1996. . . . . . . . . . .A-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996. . . . . . . . . . . . . . . . .A-5
Notes to Consolidated Financial Statements at
December 31, 1997 and 1996. . . . . . . . . . . . . . . . .A-6
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The information required by this item is incorporated by reference
to the information set forth under the caption "Proposal 1 -- Election of
Directors" contained in the Proxy Statement to be used by the Company in
connection with its 1998 Annual Meeting of Stockholders.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference
to the information set forth under the caption "Compensation of Executive
Officers and Directors" contained in the Proxy Statement to be used by the
Company in connection with its 1998 Annual Meeting of Stockholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference
to the information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" contained in the Proxy Statement to be used
by the Company in connection with its 1998 Annual Meeting of Stockholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference
to the information set forth under the caption "Certain Transactions"
contained in the Proxy Statement to be used by the Company in connection with
its 1998 Annual Meeting of Stockholders.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The exhibits listed below are filed with this report.
3.1 Restated Articles of Incorporation and Restated By-Laws of
the Company.(4)
10.1 1982 Stock Option Plan.(1)
10.2 Form of Nonqualified Incentive Stock Option Agreement.(1)
10.3 $10,000,000 Promissory Note Secured by Deed of Trust dated
March 29, 1991.(1)
10.4 Development Agreement dated November 15, 1991 between
H.F. Properties, Ltd. and Westco Marina, Inc.,
as amended.(1)
10.5 Tax Sharing Agreement dated November 20, 1989 among the
Company, the Association, Homestead Land Development
Corporation and Gramercy.(1)
10.6 Stock Option Plan for Nonemployee Directors.(2)
10.7 Sublease Agreement dated April 1, 1993 between the Company
and Wilfred, Inc.(2)
10.8 Extension and Modification Agreement for Promissory Note
and Deed of Trust dated August 25, 1992.(2)
10.9 Partnership Agreement, Glenbriar Joint Venture, dated
January 7, 1994 between GIC Investment Corporation and
Westco Community Builders.(3)
10.10 Stock Option Plan for Nonemployee Directors.(5)
10.11 Form of Nonqualified Stock Option Agreement as of
November 16, 1994.(5)
10.12 1995 Stock Option Plan.(5)
10.13 Form of Incentive Stock Option Agreement.(5)
10.14 Form of Nonqualified Stock Option Agreement.(5)
22.1 Subsidiaries of the registrant.(3)
24.1 Consent of Grant Thornton LLP
27.1 Financial Data Schedule for the Year Ended
December 31, 1997.
___________________
(1) - Incorporated by reference to the Exhibit bearing the same
numerical description in the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1991.
(2) - Incorporated by reference to the Exhibit bearing the same
numerical description in the Company's Annual Report on
Form 10-KSB for the Year Ended December 31, 1992.
(3) - Incorporated by reference to the Exhibit bearing the same
numerical description in the Company's Annual Report on
Form 10-KSB for the Year Ended December 31, 1993.
(4) - Incorporated by reference to the Exhibit bearing the same
numerical description in the Company's Annual Report on
Form 10-KSB for the Year Ended December 31, 1994.
(5) - Incorporated by reference to the Exhibit bearing the same
numerical description in the Company's Quarterly Report
on Form 10-QSB for the Quarter Ended June 30, 1995.
(b) No reports on Form 8-K were filed with the Securities and Exchange
Commission during the fourth quarter of the year ended
December 31, 1997.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DOVER INVESTMENTS CORPORATION
Date: March 20 , 1998 By: /s/ Lawrence Weissberg
Lawrence Weissberg
Chairman of the Board,
President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/ Arnold Addison Director March 20, 1998
(Arnold Addison)
/s/ John Gilbert Director March 20, 1998
(John Gilbert)
/s/ Erika Kleczek Principal March 20, 1998
(Erika Kleczek) Financial Officer
/s/ Lawrence Weissberg Director, Chairman March 20, 1998
(Lawrence Weissberg) of the Board,
President and Chief
Executive Officer
(Principal Executive
Officer)
/s/ Will C. Wood Director March 20, 1998
(Will C. Wood)
<PAGE>
APPENDIX A
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
DOVER INVESTMENTS CORPORATION
AND SUBSIDIARIES
December 31, 1997 and 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Dover Investments Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Dover
Investments Corporation, Joint Ventures and Subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dover
Investments Corporation, Joint Ventures and Subsidiaries as of December 31,
1997 and 1996, and the consolidated results of their operations and their
consolidated cash flows for the years then ended in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
San Francisco, California
March 4, 1998
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(in thousands except share amounts)
ASSETS 1997 1996
Cash $ 2,660 $ 1,438
Restricted Cash 1,416 125
Securities Purchased under Agreement to Resell - 1,400
Homes Held for Sale 1,290 1,437
Property Held for Development 20,610 21,682
Other Assets 2,781 643
Deferred Income Taxes 352 -
Total Assets $29,109 $26,725
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued Interest and Other Liabilities $ 1,373 $ 1,490
Notes Payable 7,063 5,999
Deferred Income Taxes - 9
Minority Interest in Joint Venture 226 131
Total Liabilities 8,662 7,629
Stockholders' Equity
Class A Common Stock, Par Value, $.01
Per Share-Authorized 2,000,000 Shares;
Issued 804,927 Shares at 12/31/97 and
805,098 Shares at 12/31/96 8 8
Class B Common Stock, Par Value, $.01 Per
Share-Authorized 1,000,000 Shares; Issued
322,427 Shares at 12/31/97 and 322,708
Shares at 12/31/96 3 3
Additional Paid-In Capital 19,810 19,031
Retained Earnings from January 1, 1993 1,272 884
Treasury Stock (119,316 in 1997 and
154,450 in 1996 of Class A Shares
and 4,560 of Class B Shares) (646) (830)
Total Stockholders' Equity 20,447 19,096
Total Liabilities and Stockholders' Equity $29,109 $26,725
The accompanying notes are an integral part of these statements.
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
(in thousands except per share amounts)
1997 1996
Home Sales $16,972 $10,036
Lot Sales 1,949 -
Total Sales 18,921 10,036
Cost of Homes Sold 14,969 9,156
Cost of Lot Sales 1,361 -
Total Cost of Sales 16,330 9,156
Minority Interest in Joint Ventures 38 -
Gross Profit 2,553 880
Selling Expenses 1,130 697
General and Administrative Expenses 618 534
1,748 1,231
Operating Profit (Loss) 805 (351)
Other Income
Interest 131 124
Fees 34 -
Total Other Income 165 124
Income (Loss) before Income Taxes 970 (227)
Provision (Benefit) for Income Taxes 582 (53)
Net Income (Loss) $388 $(174)
Net Income (Loss) per Share $0.39 $(0.18)
Net Income per Share
Assuming Dilution $0.38 $ -
The accompanying notes are an integral part of these statements.
<TABLE>
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Two years ended December 31
(in thousands)
<CAPTION>
Additional Treasury
Common Stock Paid-In Retained Stock
Class A Class B Capital Earnings at Cost Total
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 8 $ 3 $19,185 $1,058 $(671) $19,583
Reissuance of treasury stock - - (2) - 2 -
Purchase of common stock - - - - (161) (161)
Adjustment for utilization of
prior years prequasi-
reorganization net operating
loss tax benefits - - (152) - - (152)
Net loss for the year - - - (174) - (174)
Balance at December 31, 1996 8 3 19,031 884 (830) 19,096
Reissuance of treasury stock - - 19 - 184 203
Realization of prequasi-
reorganization net operating
loss tax benefits - - 760 - - 760
Net income for the year - - - 388 - 388
Balance at December 31, 1997 $ 8 $ 3 $19,810 $1,272 $(646) $20,447
<FN>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
(in thousands)
1997 1996
Cash Flows from Operating Activities:
Net Income (Loss) $ 388 $ (174)
Reconciliation of Net Income (Loss) to Net Cash
Provided by (Used in) Operating Activities:
Minority Interest 95 80
Deferred Taxes (361) (50)
Tax Benefit of Utilizing Prequasi-
reorganization Net Operating Losses 760 -
Changes in Assets and Liabilities:
Restricted Cash (1,291) 339
Property Held for Development 1,072 831
Homes Held for Sale 147 (174)
Other Assets (2,138) (10)
Income Taxes Receivable - 62
Accrued Interest and Other Liabilities, Net (117) 1,177
Net Cash (Used in) Provided by
Operating Activities: (1,445) 2,081
Cash Flows from Investing Activities:
Proceeds from Securities Purchased
under Agreement to Resell 1,400 900
Net Cash Provided by Investing Activities 1,400 900
Cash Flows from Financing Activities:
Proceeds from (Repayment of) Notes Payable 1,064 (2,021)
Reissuance of Treasury Stock 203 -
Purchase of Common Stock - (161)
Net Cash Provided by (Used in)
Financing Activities 1,267 (2,182)
Net Increase in Cash 1,222 799
Cash at Beginning of Year 1,438 639
Cash at End of Year $2,660 $1,438
Supplemental Cash Flow Activity:
Cash Paid for Interest $617 $791
Cash Paid for Income Taxes $134 $ -
The accompanying notes are an integral part of these statements.
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(in thousands except share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING POLICIES
Dover Investments Corporation (the "Company"), is in the business of
developing land and building single family homes. The Company owns property
in San Leandro and Tracy, California.
The Company and Westco Community Builders, Inc. ("WCB") formed a joint
venture general partnership, Glenbriar Joint Venture ("Glenbriar"), for the
purpose of owning, subdividing and developing a tract of land comprising of
approximately 108 acres located in Tracy known as the Glenbriar project.
The partnership interests are 99:1 for the Company and WCB respectively.
Profits, losses and net cash flows are being allocated according to the
joint venture agreement.
On January 1, 1996, the Company formed Glenbriar Venture #2 ("GV2"), a
limited liability company, with WCB. GV2 then purchased options to purchase
land adjacent to the Glenbriar property from WCB. This adjacent land has
exactly the same entitlement status as the Glenbriar property. The Company
anticipates developing and selling lots in both the Glenbriar property and
the GV2 property. The Members' interests are 75:25 for the Company and WCB
respectively. Profits, losses and net cash flows are being allocted according
to the joint venture agreement.
During the third quarter, the Company entered into agreements with WCB
whereby WCB would construct and sell two higher priced custom single family
homes in the Silicon Valley Region of California.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries and joint ventures. All significant
intercompany transactions are eliminated in consolidation.
Property Held for Development
Costs for the development of property and the building of homes are
capitalized during the construction period. Such costs include
expenditures for land, land improvements, model homes, capitalized
interest, various fees, and costs of construction-in-progress.
Use of Estimates
In preparing the financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(in thousands except share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING POLICIES (continued)
Revenues From and Cost of Home Sales
The Company recognizes income from home sales upon the closing and transfer
of title to the buyer. The cost of a home sold, includes land, site
development, construction, management fees and financing costs. For each
home sold, a reserve equal to one percent of the selling price is established
to cover warranty expense incurred subsequent to the home sale. Warranty
expenditures are charged to the reserve when paid. Sale of lots are
recognized upon the closing and transfer of title to the buyer. The cost of
the lot sold, includes land, site improvement, development and financing
costs.
Income Taxes
The Company follows the liability method in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based
on differences between the financial reporting and tax basis of assets and
liabilities and on the expected future tax benefit to be derived from tax
loss carryforwards, if any. Additionally, deferred tax items are measured
using current tax rates. A valuation allowance is established to reflect the
likelihood of realization of deferred tax assets.
Concentrations of Risk
The Company maintains its cash balances, which exceed federally insured
limits, in a major Financial Institution. The Company has not experienced
any losses in such accounts and believes it is not exposed to significant
risk or loss.
Restricted Cash
Restricted cash is to be used for certain infrastructure improvements
relating to the Marina Vista Development and the Glenbriar Estates Project.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash equivalents.
Reclassification
Prior year financial statements have been reclassified to conform to current
year presentation.
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(in thousands except share amounts)
NOTE B - SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
The Company purchased securities under agreements to resell (repurchase
agreements) with primary securities dealers. Such repurchase agreements are
typically overnight investments and collateralized by mortgage-backed
certificates which are held on behalf of the Company by the dealers who
arrange the transaction. During 1997 such overnight investments were
liquidated.
NOTE C - NOTES PAYABLE
Notes payable at December 31, are comprised of the following:
1997 1996
Notes Payable, maturing June 30, 1998, and
bearing interest at 11.25% per annum secured
by four model homes $ 802 $ 802
Notes Payable, maturing March 29, 1997, payable
in annual installments of $2,500 and bearing
interest at 12% per annum, payable quarterly - 2,500
Notes Payable, maturing September 30, 1998,
and bearing interest at prime (8.50% at
December 31, 1997) plus 1.5%; secured by lots 5,347 1,597
Notes Payable, maturing September 30, 1997,
and bearing interest at 12% per annum secured
by the Deed of Trust - 1,100
Notes Payable, maturing December 30, 1998, and
bearing interest at USB rate (8.50% at
December 31,1997) plus 1.5%; secured by the
Deed of Trust 914 -
$7,063 $5,999
Aggregate principal payments of $7,063 are due by December 31, 1998.
Interest expense in 1997 and 1996, amounted to $638 and $812, respectively,
and was capitalized as part of property held for development.
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(in thousands except share amounts)
NOTE D - LEASE COMMITMENT
The Company entered into an agreement to lease new premises for a term
that commenced on October 1, 1997 and ends on September 30, 2002, with an
option to extend for an additional period of five years. The Company also
entered into an agreement to sublease to another Corporation a portion of
the premises. That corporation's share of the lease equals 35% of the total
rent and operating costs. The Company is also responsible for a yearly
operating cost. A summary of minimum lease payments is as follows:
Years ending December 31,
1998 $ 46
1999 46
2000 48
2001 52
2002 39
Total $ 231
Rent expense for the years ended December 31, 1997 and 1996 totaled $33
and $35 respectively.
NOTE E - INCOME TAXES
Income tax expenses (benefit) for the year ended December 31, consist of:
1997 1996
Current $181 $ (3)
Deferred 401 (50)
Total $582 $(53)
A tax benefit for 1997 in the amount of $760, for prequasi-reorganization net
operating losses has been credited to paid-in capital. In 1996, an adjustment
of $152 was made, reducing paid-in capital and increasing deferred taxes
payable for the utilization of prior years' prequasi-reorganization net
operating loss tax benefits.
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(in thousands except share amounts)
NOTE E - INCOME TAXES (continued)
The following is a reconciliation between the federal statutory rate and the
effective rate used for the Company's provision for taxes:
1997 1996
Tax expense at statutory federal
income tax rate (34%) $330 $(77)
State franchise tax 57 (14)
Change in valuation allowance 193 -
Accrual adjustment - 36
Other 2 2
Income tax expense $582 $( 53)
Net deferred taxes as of December 31, 1997, are as follows:
1997 1996
Accrued warranty reserve $ 64 $ 43
AMT credit carry forward 199 18
Accrued expenses 13 14
State income taxes 1 1
Capital loss carryover 30 30
Property held for development - (207)
Depreciation (6) (5)
Net operating loss carry forward 355 127
656 21
Valuation allowance (304) (30)
Net deferred tax asset (liability) $ 352 $ (9)
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
(in thousands except share amounts)
NOTE E - INCOME TAXES (continued)
Statement of Financial Accounting Standards ("SFAS") 109 requires the
establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. The Company has recorded a valuation
allowance for the capital loss carry forward in 1996 and 1997. The deferred
tax asset schedule above does not give effect to any deferred tax asset
related to prequasi-reorganization tax loss carry forwards. Tax benefits
resulting from such tax loss carry forwards of approximately $21,400 for
federal purposes will be reflected in the financial statements as credits
to additional paid-in capital rather than as reductions in current income
tax expense, when and if recognized. The change in the valuation allowance
was $0 in 1996 and $274 in 1997.
As of December 31, 1997, the Company has Federal and State net operating loss
carry forwards of approximately $22,900 and $324 expiring through 2011
and 2001, respectively.
NOTE F - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosure of the estimated fair
value of an entity's financial instrument assets and liabilities. These
assets and liabilities consist of cash, securities and long-term debt.
The balance sheet carrying amounts of cash, securities and debt approximate
the estimated fair values.
NOTE G - COMMON STOCK OPTION PLANS AND EARNINGS PER SHARE
At December 31, 1997, the Company had three stock-based compensation plans.
The Company applies APB Opinion 25 "Accounting for Stock Issued to Employees"
and related interpretations in accounting for the plans. No compensation
costs have been recognized for the plans.
Under the Amended and Restated 1982 Stock Option Plan, options granted in
1992 to purchase 500 shares Class A Common Stock at $1.50 per share are
outstanding at December 31, 1997. The options become exercisable over 5
years. The options terminate upon the earliest of (a) thirty days after
the date of cessation of employment, (b) one year after an optionee's death
or (c) ten years after the date such options were granted.
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE G - COMMON STOCK OPTION PLANS AND EARNINGS PER SHARE (continued)
Under the 1995 Stock Option Plan (the "Plan"), 200,000 shares of Class A
Common Stock and 200,000 shares of Class B Common Stock of the Corporation
have been reserved for issuance pursuant to the Plan. The aggregate number
of shares which may be issued under the Plan shall not exceed 200,000 shares
of any combination of shares of Class A Common Stock and Class B Common
Stock. Awards may be made under the Plan until January 16, 2005.
The exercise price for shares subject to the options granted under the Plan
is the fair market value of the shares at the date of grant. The option price
per share of a stock option granted to a person who, on the date of such
grant, owns stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company shall be not less than 110% of the
fair market value on the date that the option is granted. Options granted
under the Plan are exercisable in 1/3 increments on each anniversary of the
grant date, with full vesting occurring on the third anniversary date.
As of December 31, 1997, options for 144,666 shares were outstanding.
The 1990 Stock Option Plan for Nonemployed Directors (the "Restated Plan"),
was restated and approved by stockholders on June 7, 1995. The exercise
price for each option granted is the market price of the shares at the date
of grant. Options granted under the Restated Plan are exercisable in 50%
increments on each anniversary of the grant date, with full vesting occurring
on the second anniversary date. All options terminate upon the earliest of
(a) thirty days after an optionee ceases to be a director of the Company for
any reason other than death, (b) six months after an optionees death or
(c) ten years after the date such options were granted. The aggregate number of
shares which may be issued under the Restated Plan shall not exceed 12,500
shares of Class A Common Stock. The compensation effect of the nonemployed
director options on the Company's results of operations and per share results
are immaterial.
The Restated Plan provides that each director who is not an
employee of the Company and has not been an employee of the Company for all
or any part of the preceding fiscal year automatically receives options to
purchase 1000 shares of Class A Common Stock upon their election or
appointment as a director of the Company. Thereafter, every year options to
purchase 500 shares of Class A Common Stock (subject to adjustment for
recapitalizations, stock splits and similar events) will automatically be
granted to such director, provided, however, that such automatic option
grants will be made only if the director (a) has served on the Board of
Directors for the entire two preceding fiscal years, (b) is not otherwise
an employee of the Company or any subsidiaries on the date of grant and
(c) has not been an employee of the Company or any subsidiaries for all or
any part of the preceding fiscal years. As of December 31, 1997, options
for 3,700 shares were outstanding.
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE G - COMMON STOCK OPTION PLANS AND EARNINGS PER SHARE (continued)
Had compensation cost for the plans been determined based on the fair value
of the options at the grant dates consistent with the methodology prescribed
by FAS 123, the Company's net income (loss) and income (loss) per share would
be reduced to the pro forma amounts indicated below;
1997 1996
Net income (loss) As reported $ 388 $(174)
Pro forma 313 (233)
Net Income (loss)
Per share As reported $0.39 $(0.18)
assuming dilution Pro forma 0.30 (0.24)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options pricing model with the following weighted-average
assumptions: expected life, five years from the date of grant; stock
volatility 88% in 1997 and 70% in 1996; risk free interest rates, 6.2%
in 1997 and 6.3% in 1996; no dividends are expected.
A summary of the status of the Company's fixed stock plans as of December 31,
1997 and 1996, and changes during the years ending on those dates is
presented below:
1997 1996
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
Outstanding at beginning
of year 108,750 $ 5.63 107,200 $ 5.72
Granted 77,000 4.96 2,000 6.82
Cancelled (2,250) 4.16 - -
Exercised (35,134) 5.76 (450) 2.36
Outstanding at ending of year 148,366 5.36 108,750 5.74
Options exercisable at year end 37,102 $ 5.69 36,822 $ 5.63
Weighted-average fair value of
options granted during the year $ 3.62 $ 4.78
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE G - COMMON STOCK OPTION PLANS AND EARNINGS PER SHARE (continued)
The following information applies to options outstanding at December 31, 1997:
Range of exercise prices $0.70 - $1.75 $3.25 - $5.875 $6.00 - $7.0125
Options outstanding 2,000 110,533 35,833
Weighted average
exercise price $1.36 $4.91 $6.96
Weighted average remaining
contractual life (years) 6.00 4.50 3.40
Options exercisable 1,733 17,617 17,751
Weighted average
exercise price $1.33 $4.83 $6.97
The following table illustrates the reconciliation of the numerators and
denominators of the basic and diluted earnings per share ("EPS") computations.
For the Year Ended December 31, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Net Income $388,000 999,024 $0.39
Effect of Dilutive
Securities Options 27,763
Dilutive EPS
Income available to
common shareholders and
assumed conversions $388,000 1,026,787 $0.38
Diluted EPS was not calculated for the fiscal year ending December 31, 1996,
as the Company incurred a net loss and the effect would be antidilutive.
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0
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<OTHER-EXPENSES> 618
<LOSS-PROVISION> 0
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